Employment Contracts

by Kate Russell

Rights of employees and workers

The Working Time Regulations 1998 provide some rights and protections, as listed below.

Who is protected?

The Working Time Regulations provide protection to workers. This includes employees and the majority of agency workers and freelancers. Someone doing in-house training or a trainee on work experience – for example, doing a National Traineeship – is also a worker. A young worker is someone who is above the minimum school leaving age but under 18.

The regulations provide a number of rights. An outline is given below.

Hours of work

  • Workers cannot be required to work for more than 48 hours a week on average.
  • Young workers may not ordinarily work more than eight hours a day or 40 hours a week, although certain exceptions are allowed.
  • Working time includes travelling where it is part of the job, working lunches and job-related training.
  • Working time does not include travelling between home and work, lunch breaks, evening classes or day-release courses.
  • The average weekly working time is normally calculated over 17 weeks. This can be longer in certain situations (26 weeks) and it can be extended by agreement (up to 52 weeks).
  • Workers can agree to work longer than the 48-hour limit. An agreement must be in writing and signed by the worker. This is generally referred to as an opt-out. It can be for a specified period or an indefinite period. There is no opt-out available from the young workers’ limits.
  • Workers can cancel the opt-out agreement whenever they want, although they must give their employer at least seven days’ notice, or longer (up to three months), if this has been agreed.
  • The working time limits do not apply if workers can decide how long they work.

You must take all reasonable steps to ensure that workers you employ are not required to work more than an average of 48 hours a week, unless they have signed an opt-out agreement.

Young workers

Young workers may not ordinarily work more than

  • 8 hours a day
  • 40 hours a week.

The hours worked cannot be averaged out and there is no opt-out available.

They may work longer hours where this is necessary to either

  • Maintain continuity of service or production

or

  • Respond to a surge in demand for a service or product

and provided that

  • There is no adult available to perform the task
  • The training needs of the young worker are not adversely affected.

Young workers who are employed on ships or as part of the armed forces are excluded from the working time limits under the Working Time Regulations. Their average weekly working time is calculated using a 26-week reference period.

What is meant by ‘working time’?

Time spent ‘working at his employer’s disposal and carrying out his activity or duties’ is working time.

This includes

  • Working lunches, such as business lunches
  • When a worker has to travel as part of his or her work – for example a 24-hour mobile repairman or travelling salesman
  • When a worker is undertaking training that is job-related
  • Time spent abroad working if a worker works for an employer who carries on business in Great Britain.

It does not include

  • Routine travel between home and work
  • Rest breaks when no work is done
  • Time spent travelling outside normal working time
  • Training, such as non-job-related evening classes or day-release courses.

On call time

As a rule of thumb, on call time spent at the place of work will be working time. When an on-call worker is able to be away from the workplace and free to pursue leisure activities, on-call time is not ‘working time’. In the second case, only time spent actually working will be regarded as working time.

Example

The European Court of Justice confirmed that ‘on-call’ time would be working time when a worker is required to be at his place of work, even if there are arrangements for him to sleep while he isn’t actually working.

How is average weekly working time calculated?

The number of hours worked each week should be averaged out over 17 weeks or however long a worker has been working for their employer if this is less than 17 weeks. This period of time is called the ‘reference period’.

  • Workers and employers can agree to calculate the average weekly working time over a period of up to 52 weeks under a workforce or collective agreement.
  • The reference period is also extended to 26 weeks in other circumstances

The average weekly working time is calculated by dividing the number of hours worked by the number of weeks over which the average working week is being calculated, for example 17.

If a worker is away during the reference period because he is taking paid annual leave, maternity, paternity, adoption or parental leave, or is off sick, you will need to make up for this time in your calculation. Do this by adding the hours worked during the days which immediately followed the 17-week period – use the same number of days as those when work was missed.

Opting out

An individual worker may agree to work more than 48 hours a week. If so, he should sign an opt-out agreement, which he can cancel at any time. The employer and worker can agree how much notice is needed to cancel the agreement, which can be up to three months. In the absence of an agreed notice period, the worker needs to give a minimum of seven days’ notice of cancellation.

You cannot force a worker to sign an opt-out. Any opt-out must be agreed to. Workers must not be dismissed or subjected to detriment for refusing to sign an opt-out.

You must keep a record of who has agreed to work longer hours.

Night work

  • A night worker is someone who normally works at least three hours at night.
  • Night time is between 11pm and 6am, although workers and employers may agree to vary this.
  • Night workers should not work more than eight hours daily on average, including overtime where it is part of a night worker’s normal hours of work.
  • Nightly working time is calculated over 17 weeks. This can be longer in some situations.
  • A night worker cannot opt-out of the night work limit.
  • Young workers should not ordinarily work at night, although there are certain exceptions.

Mobile workers

Mobile workers are excluded from the night-work limits. Instead, they are entitled to ‘adequate rest’.

Adequate rest means that workers have regular rest periods. These should be sufficiently long and continuous to ensure that workers do not injure themselves, fellow workers or others and that they do not damage their health, either in the short term or in the longer term.

Health assessments

Night workers are entitled to be offered free health assessment before they start working nights and on a regular basis while they are working nights. The frequency meant by regular basis is not defined by the regulations, but is thought to be annually.

  • Workers do not have to have a health assessment, but they must be offered it.
  • A health assessment can be made up of two parts: a questionnaire and a medical examination. A medical examination is only necessary if you have doubts about the worker’s fitness for night work.
  • Get help from a suitably qualified health professional when devising and assessing the questionnaire.
  • The health assessment should take into account the type of work that will be done and the restrictions on the worker’s working time under the regulations.
  • If a worker suffers from problems which are caused or made worse by night work, transfer him to day work if possible.
  • New and expectant mothers should be given special consideration.
  • Special consideration should be given to young workers’ suitability for night work, taking account of their physique, maturity and experience.

Click here for a health assessment template for night workers.

Rest periods

Daily rest

A worker is entitled to a rest period of 11 uninterrupted hours between each working day.

Weekly rest

A worker is entitled to one whole day off a week. Days off can be averaged over a two-week period, meaning workers can take two days off a fortnight. Days off are taken in addition to paid annual leave.

Employers must make sure that workers can take their rest, but are not required to make sure they do take their rest.

Special rules for young workers

A young worker is entitled to 12 uninterrupted hours in each 24-hour period in which they work. The rest may be interrupted if periods of work are split up over the day or do not last long.

A young worker’s entitlement to daily rest can be reduced or excluded in exceptional circumstances only. Where this occurs, the young worker should receive compensatory rest within three weeks.

Young workers are entitled to two days off each week. This cannot be averaged over a two-week period, and should normally be two consecutive days.

If the nature of the job makes it unavoidable, a young worker’s weekly time off can be reduced to 36 hours, subject to them receiving compensatory rest.

Rest breaks while at work

If a worker is required to work for more than six hours at a stretch, he is entitled to a rest break of 20 minutes. This can be paid or unpaid.

The break should be taken during the six-hour period and not at the beginning or end of it. The exact time the breaks are taken is up to the employer to decide.

Employers must make sure that workers can take their rest, but are not required to make sure they do take their rest.

Special rules for young workers

Different rules apply to young workers. If a young worker is required to work for more than four and a half hours at a stretch, he is entitled to a rest break of 30 minutes.

If a young worker is working for more than one employer, the time he is working for each one should be added together to see if he is entitled to a rest break.

A young worker’s entitlement to breaks can be reduced or excluded in exceptional circumstances only. Where this occurs, the young worker should receive compensatory rest within three weeks.

Holiday entitlement

The Working Time Regulations 1998 originally entitled workers to four weeks’ annual paid holiday, which could include the eight bank/public holidays. The Work and Families Act 2006 extended the right to four weeks’ paid holiday each year, plus the equivalent of eight paid bank/public holidays.

The four weeks holiday is called ‘annual holiday’. The amount of holiday is based on an employee’s normal weekly hours, so an employee who works five days a week gets 20 days and an employee who works three days a week gets 12 days, The extra eight days will be known as ‘additional holiday’. There will be no qualifying period for the additional holiday entitlement.

Statutory holiday entitlement is now 5.6 weeks.

Note

There is still no right to take time off on a bank holiday. The right to holiday for full time workers is 28 days, which may include some or all bank holidays, or may not.

There is a maximum annual statutory entitlement of 28 days, so workers who work six days a week will still be capped at 28 days statutory holiday. You can, of course, give more contractual holiday than the statutory level and the statutory rules won’t apply to that element of your employees’ holiday entitlement.

There is no general provision to pay for holiday accrued but not taken, unless the employee is terminating his contract.

Any time off for bank and public holidays can be included in the additional entitlement (for example, you can give four weeks’ leave plus time off for bank holidays).

Holiday will be calculated on a pro-rata basis for part-time workers (5.6 times their usual working week), regardless of whether or not they usually work on bank holidays.

The Working Time Regulations do not allow the annual holiday entitlement to be carried over from one year to the next. The amending legislation allows for some or all of the additional holiday to be carried over to the following leave year, subject to agreement between the business and the employee. At least four weeks’ holiday will still have to be taken each year. Such carrying over arrangements may be made with the agreement of both the employer and the member of staff.

Additional holiday will not be excluded from the calculation of average weekly working hours under the Working Time Regulations. The Regulations propose that the total (5.6) weeks’ holiday doesn’t have to be rounded up to the nearest full day, but you may want to do this for ease of administration. You will not be able to round down.

BIS has provided an on-line calculator to help calculate holiday entitlement.

Should overtime and commission be added to the basic pay calculation?

If your employees regularly work paid overtime (even if this is not guaranteed) and/or you pay commission or regular bonuses or allowances to any of your employees you are likely to be affected by recent court rulings. In 2012, the Court of Justice of the European Union (CJEU), in Williams v British Airways plc, confirmed that workers should be paid their ‘normal remuneration’ whilst on holiday – in other words, they should not be financially disadvantaged by taking leave.

The latest judgement relates to three cases: Bear Scotland v Fulton and Baxter, Hertel (UK) Ltd v Wood and others, and Amec Group Ltd v Law and others. Under the Working Time Directive 1998, all employees and workers are entitled to four weeks’ paid holiday each year. The directive does not specify how holiday pay should be calculated. Later regulations added another 1.6 weeks, known as additional holiday.

Holiday is paid on the basis of a week’s pay as set out in the Employment Rights Act, in other words, the amount an employer would pay under the contract once the contracted hours have been worked, so includes all compulsory elements of pay such as an attendance bonus and overtime that is both compulsory and guaranteed. However voluntary overtime was specifically excluded and until the Lock case, commission has not been included by most employers when calculating holiday pay.

In summary, the Employment Appeal Tribunal made the following findings in Bear Scotland et al.

  • Holiday pay must correspond to the pay that the employee or worker normally receives. This includes ‘non-guaranteed’ overtime and other allowances that are ‘intrinsically linked to the performance of the tasks’ (in the above cases ‘radius allowances’ and ‘travelling time payments’). Overtime which is compulsory for the employee and is regularly required – this must be included. Overtime which cannot be unreasonably refused and is regularly required – all pay for this overtime must be included. It’s likely that voluntary but worked regularly overtime would be in the scope of ‘normal pay’.
  • The EAT did not deal with overtime which is voluntary, occasional and irregular, but it’s thought that this would not be included in holiday calculations on the basis that it would fail the ‘normal’ test.
  • This holiday pay calculation only applies to the first four weeks of statutory leave under the Working Time Directive - not the additional 1.6 weeks' holiday, nor any additional contractual holiday.

This means that employers who require their employees to work paid non-guaranteed overtime or who pay commission and other allowances, will have to increase holiday pay in future to reflect these payments.

The period for which workers can claim in respect of past underpayment is restricted as claims for arrears of holiday pay will be out of time if there has been a break of more than three months between underpayments.

The details of the ruling have yet to be released. Business Secretary Vince Cable has announced that he is setting up a task force to assess the possible impact of the judgement.

The overtime has to be such that the worker must work it if requested to so the reference period for calculating average pay is not determined. A 12 week period is the most likely, but this may not be the case (this will have particular impact on commission or where overtime is only worked at crucial peak times during the year).

Leave was granted to appeal to the Court of Appeal and an appeal is highly likely, in which case the situation may change.

At the moment, it may be best to defer making any payments until more is known but to assess the potential implications for your business as follows.

  • Calculate the amount of overtime (both voluntary and non-voluntary) and commission and other regular allowances (such as other premiums/travel time payments that are in excess of expenses reimbursement) that have been paid to your employees over the past year, then assess the effect of an increase in holiday pay if these are factored into the calculation for the first four weeks of each relevant worker's holiday pay each year.
  • Budget for this if you have not done so already.
  • Tighten up on your record keeping procedures if necessary to ensure that records of working time and overtime are accurate, and also check whether your payroll system will be able to cope with calculating holiday pay in different ways.
  • Consider whether you will want to retain a ‘two-tier’ holiday pay arrangement – with the first four weeks paid at a higher rate than the remainder.
  • It’s probably best to wait before amending contracts or handbooks at this stage, but, if appropriate, you may wish to review your wording on overtime and remove any ‘requirement’ to work this if in practice this is always worked on a voluntary basis.
  • Look at when holiday tends to be taken. This will help you to identify the period over which potential liabilities might extend. Do not dispose of your holiday records for previous years as these may help to establish which leave forms part of the first four weeks, and which does not – and therefore where any breaks in the sequence of underpayments occur. Employees who have left more than three months ago may not make a claim.
  • Calculate the likely cost of any backdated claims and start to set aside funds should you need to pay.
  • Consider your use of overtime. If this is regular, and if this ruling will create problems for your business, might you reduce your reliance on this by resourcing this by other means, or building flexibility into your contracts? (For example if there are troughs as well as peaks in workload you may want to build in the right to insist on time off in lieu rather than paid overtime, or to look at contracts such as annualised hours.)
  • Look at your employees' amounts of outstanding holiday currently and consider your rules on the taking of this. You may be able to ensure a three month gap now between holidays which may limit your risk.
  • Consider all other premiums and allowances. Are they serving their purpose? When you hold your annual pay review, would now be the time to buy out of some of them?

In Lock v British Gas Trading Ltd [2014], the European Court of Justice found that contractual commission payments do fall within normal pay. This means that employers should take commission into account when calculating a worker’s holiday pay. The Lock decision reaffirms the principle that where a worker’s normal pay consists of basic salary and variable elements directly linked to work, then holiday pay should be paid on the basis that a worker receives pay comparable to normal pay whilst on holiday. Workers should not be deterred from taking leave by being paid less (no commission payments, in other words). Following the ruling, national courts must determine how the commission element in respect of a period of holiday should be calculated. The impact of this ruling will be extensive for employers, not only when calculating future holiday pay, but it could also result in significant liability for retrospective payments, going back six years. Employers who have workers whose remuneration is made up of a basic salary and commission, should review the calculation of their holiday pay.

Bank and Public Holidays

Some workers may be contractually entitled to take leave on bank/public holidays, but there will be no statutory right to do so. Where a worker is required to take statutory leave on a bank/public holiday and he is on some other leave that day (such as maternity or sick leave), he would generally be entitled to take another day instead, so statutory holiday entitlement is not lost.

If you feel that an employee is abusing the right to holiday by regularly going sick on a public holiday, it is open to you to investigate the matter and take formal disciplinary action, if appropriate.

Holiday and ill health

The decision in Stringer v HMRC clearly established that workers on long-term sick leave accumulate statutory holiday throughout their absence. If the worker is absent for many years, but remains an employee (as might happen if the employer provides PHI), does the holiday continue to accumulate? Following a recent decision by the ECJ, it seems that there are limits.

In KHS AG v Schulte, the ECJ said that the right to paid annual leave, as set out in the Working Time Directive, has the dual purpose of enabling the worker both to rest from carrying out the work he is required to do under his contract of employment and to enjoy a period of relaxation and leisure. The right to paid annual leave by a worker who is unfit for work for several consecutive annual leave periods can reflect both the aspects of this purpose only in so far as the carry over does not exceed a certain temporal limit. Beyond such a limit annual leave ceases to have its positive effect for the worker as a rest period and is merely a period of relaxation and leisure. Therefore a worker cannot have the right to accrue paid annual leave indefinitely.

The Court concluded that statutory holiday must be taken within a reasonable time period (in this case 15 months) or it will cease to be considered as providing a rest from work, but ‘merely a period of relaxation and leisure’. This would be inconsistent with the aims of the Working Time Directive and therefore not be available to be claimed by the worker.

The ECJ issued guidance regarding ‘carry over periods’. It said that:

  • A carry over period must be significantly longer than the reference period for the relevant holiday year. In the ECJ case of Schultz-Hoff it was ruled that a carry-over period of six months was not incompatible with the WTD.
  • A worker must where necessary be allowed predetermined, possibly long-term and staggered rest periods.
  • Employers should not face having a worker accumulating lengthy periods of absence.

Following the decision in Pereda v Madrid Movilidad [2009] the ECJ rules that where a period of illness extends into a period that has been scheduled as statutory annual leave, the employee must be allowed if he wishes it, to reschedule his annual leave to be taken at another time once he has recovered. This is the case even if it means allowing the annual leave to be carried forward to the next holiday year.

One of the consequences of that decision is that employees who fall sick while on annual leave, would also be able to reclaim their holiday entitlement.

You may decide to prescribe conditions that the employee must satisfy to be granted an alternative period of holiday leave at a later date, in particular that

  • The employee must produce a medical certificate to cover the whole period of incapacity
  • The employee must agree to be seen by an occupational doctor and
  • The dates of any replacement holiday leave can be determined by the employee’s manager
  • Only SSP is payable in respect of sickness while on holiday

Holiday entitlement does not accrue indefinitely through a period of ill health absence. In 2012 the European Court of Justice considered the case of KHS AG v Schulte. In this case, a German collective agreement stated that where annual leave could not be taken because of sickness, the usual carry over period was extended by 12 months. This meant that workers had 15 months from the end of the relevant leave year in which to take the leave. The court ruled that limiting carry-over of holiday by workers in this way is lawful under the European Working Time Directive. The carry-over period must be substantially longer than the usual leave year, but it must also protect the employer from the risk that a worker will accumulate extremely long holidays, and from the resulting organisational difficulties. Without that limit, annual leave would cease to have positive effect as a rest period. The 15 month carry-over period here was considered reasonable, despite being less than the 18 month guideline recommended in the Advocate General’s opinion. In its ruling, the ECJ also highlighted the decision in Schultz-Hoff and Others which found that a sick worker must have actually had the opportunity to exercise the right to carry over leave.

Holiday entitlement in relation to maternity leave

During maternity leave the employee’s contract of employment remains in force for all purposes except remuneration. This means that statutory and contractual holiday entitlement continue to accrue throughout the entire period of statutory maternity leave.

You may wish to adopt a policy on accrued holiday in respect of employees taking maternity leave – for example, by requiring employees to use up all the current year’s holiday entitlement prior to the start of their maternity leave and (depending on how the dates of the employee’s maternity leave fit in with the employer’s holiday year) requiring them to take leave accrued during the maternity leave period within an agreed timescale after their return to work. The line manager should, once he knows the dates of the employee’s proposed maternity leave, hold a meeting with her to discuss and agree how this is to be managed.

Where an employer operates an annual holiday shutdown, an employee who is on maternity leave at that time will be entitled to take an equivalent period of holiday leave at another time.

The National Minimum Wage Act 1998

The National Minimum Wage was introduced in 1999 and applies to nearly all workers.

Under the National Minimum Wage Act 1998, workers are entitled to be paid at least the level of the statutory National Minimum Wage (NMW) for every hour they have worked for an employer. The rates set are based on the recommendations of the independent Low Pay Commission. For current rates see Statutory rates.

There are different minimum wage rates for different groups of workers, as follows:

  • the main rate for workers aged 22 and over
  • the development rate for 18-21 year olds
  • the development rate for 16-17 years olds.

Apprentices who are either aged under 19 (or who are over 19 and in the first year of their contract of apprenticeship) receive an apprentice minimum wage from 1st October 2010. This change is important, given the increase in the number of apprenticeships over the last twelve years (rising from 65,000 starts in 1996/97 to 240, 000 in 2008/09 in England).

What is pay?

As well as a worker’s basic pay, there are other elements of pay which may count towards the National Minimum Wage hourly rate. These include incentives, such as merit or performance-related pay, and bonuses.

Extra money above basic pay (for example, overtime or shift work premiums) do not count. Regional allowances which are not included in an employee’s basic pay do not count.

All benefits in kind (benefits other than money), except accommodation, do not count.

What counts as hours?

The number of hours for which workers must be paid the National Minimum Wage is worked out according to the type of work they do. There are four different types of work, described below.

  • Time work: the number of hours or period of time is set by the employer. You must pay workers at least the National Minimum Wage in each pay period (usually the period of time for which a worker’s wage is actually worked out), but you may take account of different hours worked in different periods.
  • Salaried hours work: a contract to work a set number of basic hours each year with a yearly salary paid in equal instalments. You must pay workers at least the national minimum in each pay period.
  • Output work: workers paid purely according to their productivity, for example, how many products they produce or their sales. You may make an agreement, in writing, with a worker that gives a ‘fair estimate’ of the number of hours they will work. If you do not make an agreement, you must pay the worker at least the National Minimum Wage for the hours they actually work.
  • Unmeasured work: for workers where there are no set hours or measures of their output. You may make an agreement, in writing, with a worker that estimates the average number of hours they will work each day. If you do not make an agreement, you must pay the worker at least the National Minimum Wage for the hours they actually work.

Unlawful deduction from wages

Employers may not make deductions from an employee’s wages unless one of the following conditions applies.

  • The deduction is required or authorised by legislation (for example, income tax or national insurance deductions).
  • It is authorised by the worker’s contract – provided that the worker has been given a written copy of the relevant terms or a written explanation of them before it is made.
  • The worker has consented in writing to the deduction before it is made.
Example

During employment, H took more paid holiday than she had accrued. The company did not have a deductions clause entitling them to recover the money. There is no express provision in the Working Time Regulations allowing an employer to recover monies overpaid in respect of holiday.

When H left the company, she claimed that the withholding of the sum in respect of overpaid holiday amounted to an unlawful deduction of wages. The EAT agreed with her and the employer was obliged to repay the money to her.

There is scope in the Working Time Regulations for a relevant agreement to make express provision for an employer to make deductions from pay for excess holidays taken, but, if the matter is not provided for in the written contract of employment or collective agreement, the employer cannot deduct the excess from wages due to the employee.